Opinion
No. K-546.
May 31, 1932.
Action by the Western Shade Cloth Company against the United States.
Petition dismissed.
Clarence N. Goodwin, of Washington, D.C., for plaintiff.
J.W. Hussey, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (Henry C. Clark and Herbert S. Fessenden, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Plaintiff seeks to recover $15,613.20 with interest. The amount sued for represents a portion of a tax of $249,715.68, shown to be due upon the returns filed by the plaintiff for itself and its affiliated corporations for the calendar year 1918 which was duly assessed, collected, and paid within the statutory period of limitation.
Plaintiff attached to its completed statutory consolidated return for 1918 an application for determination and computation of its profits tax under the relief provisions of sections 327 and 328 of the Revenue Act of 1918 ( 40 Stat. 1093). The Bureau of Internal Revenue concluded that this application should be allowed and two computations of the profits tax were made under section 328, in both of which the profits tax liability was determined to have been less than that shown on the returns filed. The first computation, which was made June 13, 1921, showed a total income and profits tax of $99,194.48 on the basis of which an overassessment of $150,521.10 resulted. The letter of June 13, incorrectly stated a proposed overassessment of $180,155.85 on the basis of the tax of $99,194.48; but this error was corrected in a subsequent letter from the bureau to the plaintiff on November 8, 1921.
Plaintiff filed certain claims for credit asking that the overpayment for 1918 be credited to its tax liabilities for 1919 and 1921. The commissioner issued no schedule of overassessment in respect of the aforementioned computation under the relief provisions, nor did he issue a certificate of overassessment with respect thereto. In July, 1927, the commissioner again considered plaintiff's application for computation of its profits tax under the relief provisions and made a further determination and computation of such profits tax for 1918. In this determination the commissioner held that the correct amount of the profits tax computed under the relief provisions was $56,383.80 instead of $38,641.41, as disclosed in the previous letter and that the total correct tax liability for the year was $114,807.78, instead of $99,357.41. After correctly allocating the total tax liability under the statute to the plaintiff and its affiliated corporations he found that the correct tax of the plaintiff under this allocation was $80,813.93, resulting in an overassessment of $134,907.90 instead of $150,521.10 as shown in the previous letter. The difference of $15,613.20 between the last-mentioned amounts is the amount which plaintiff sues to recover on the ground that a computation by the Bureau of Internal Revenue of the profits tax under the relief provisions of sections 327 and 328 is an assessment of the tax within the meaning of the statute; that such "assessment" of a total tax of $99,194.48 for 1918 was made by the commissioner in the bureau letters of June 13 and November 8, 1921, within the statutory period of limitation and that the commissioner was barred by the statute of limitation of five years from making a further "assessment" under the relief provisions in July, 1927, which increased the total tax above that shown in the earlier letters. The plaintiff states that: "The sole question at issue in this case is whether the commissioner, after making an assessment of excess-profits taxes under the provisions of section 328 of the Revenue Act of 1918 during the period within which he was permitted to make assessments, may, after the expiration of that period, make a new assessment of the excess-profits taxes for the same year in a larger amount."
Special Findings of Fact.
1. March 15, 1919, the plaintiff, an Illinois corporation, filed tentative corporation income and profits tax returns for 1918 on behalf of itself and its subsidiary companies, the Western Shade Cloth Company of New York and the Standard Shade Roller Company of New York.
Thereafter, July 16, 1919, it filed its completed consolidated income and profits tax returns for 1918 on behalf of itself and its subsidiary companies. It also filed a separate corporation income and profits tax return for its subsidiary, the Standard Shade Roller Company.
Concurrently with filing its completed consolidated return, plaintiff filed an application for the determination and computation of its profits tax for 1918 under the relief provisions of sections 327 and 328 of the Revenue Act of 1918.
Upon receipt of the tentative and consolidated returns, the amount of tax shown to be due upon each was assessed by the commissioner. In addition an assessment of $62,428.92 was made by the commissioner against the plaintiff about the same time on a "dummy" return prepared by the collector of internal revenue pending receipt by him of the completed consolidated return. The total amount of tax thus assessed was $402,144.60.
Upon receipt of the tentative returns of plaintiff's subsidiary companies, the Western Shade Cloth Company of New York and the Standard Shade Roller Company, the taxes shown thereon were assessed in the amount of $4,359.20 and $29,634.65, respectively.
2. During 1919 the plaintiff paid an aggregate of $249,715.68, plus interest of $162.93, on the income and profits tax assessed against it and its subsidiary companies for 1918. The balance of $186,422.77 of the total taxes of $436,138.45 assessed for 1918 was abated October 28, 1920, inasmuch as duplicate assessments had been made in that amount. The total tax of $249,715.68 duly assessed by the commissioner and paid by the plaintiff upon the completed consolidated income and profits tax return filed for 1918 on behalf of the plaintiff and its subsidiary companies was the tax shown to be due upon this return, and was the correct amount of income and excess-profits taxes due and payable by the plaintiff and its subsidiary companies upon the consolidated net income and invested capital for the taxable year at the rates imposed by the revenue act of 1918 without the benefit of any relief through a determination and computation of the profits tax by the commissioner under the provisions of section 328 of the Revenue Act of 1918.
3. After the filing by the plaintiff of the completed consolidated return for 1918 and the assessment and payment of the total income and profits tax of $249,715.68 shown thereon to be due, the commissioner entered upon a consideration of plaintiff's application and request for a determination and computation of its profits tax for 1918 under the provisions of sections 327 and 328 of the Revenue Act of 1918.
The commissioner at no time made any change in the consolidated net income of $547,245.19 reported in the consolidated return, upon the basis of which net income and the statutory invested capital the tax of $249,715.68 was computed, assessed, and paid.
4. The deputy commissioner of internal revenue in charge of the Income Tax Unit of the Bureau of Internal Revenue proceeded to make a computation of the profits-tax liability of the plaintiff for 1918 in the manner prescribed by sections 327 and 328 of the Revenue Act of 1918. The plaintiff apparently was advised orally by the section of the Income Tax Unit in which plaintiff's application for a computation of the profits tax under the relief provisions was being considered, that a computation of the profits tax under section 328 showed an overassessment for 1918 of $140,266.64. Whereupon the plaintiff, on June 14, 1920, filed with the collector for the district of Illinois, a claim for credit in the amount of $140,266.64, asking that the overpayment in that amount be applied as a credit against the unpaid assessment of income and profits tax for 1919. This claim for credit stated as follows:
"Claimant's return for 1918 showed net profits of $547,245.19 for the year it paid a tax of $249,715.68. In 1917 and 1918 it applied for and received an assessment of its tax under section 210, because the secretary was unable to determine its capital. It attached to its 1918 return an application under section 327, subparagraph (a) for an assessment of its 1918 taxes under section 328. This application has been favorably passed upon by the head of the special assessment section, Income Tax Unit, and the return is in process of audit. The amount claimed as overpayment in 1918, viz, $140,266.64, is on the basis of a tax of 20% on the net income, but deponent from definite information received verily believes that claimant's tax will be far less than that per cent. It, therefore, asks credit for the amount indicated to be applied upon its 1919 taxes and for such further credit as the computation now being made shall show to be due to it."
5. On June 13, 1921, the commissioner by the deputy commissioner, after consideration of plaintiff's application for a computation of the profits tax under section 328, determined a profits tax under that section of $38,641.41 and a total income and profits tax liability for 1918 of $99,194.48, and on that date mailed to the plaintiff a letter showing the result of this determination and indicating an overassessment of $180,155.85. This letter was as follows:
"Reference is made to your 1918 income and profits tax return and to your application for assessment under the provisions of section 328 of the revenue act of 1918.
"You are advised that your tax has been determined under the provisions of section 328 of the Revenue Act of 1918, resulting in a profits tax of $38,641.41. Reference to section 328, subdivision (a) in the act will give you the method by which your tax has been computed.
"As no adjustments were found necessary in the amount of your net income as reported, a computation of your tax is as follows:
Net income reported ..................... $547,245.19 =========== Profits tax, section 328 ................ 38,641.41 Income tax at 12% ....................... 60,553.07 ___________ Total tax assessable ................ 99,194.48 Interest ................................ 162.93 ___________ Total ............................... 99,357.41 Tax previously assessed .... $279,350.33 Interest assessed .......... 162.93 ___________ 279,513.26 ___________ Indicating an overassessment of 180,155.85
"Inasmuch as a claim for credit for $140,266.64, has already been filed, the adjustment of your claim to conform with the conclusions stated above will be made the subject of a separate letter from the bureau."
6. The amount of the overassessment indicated by the above letter on the basis of the total tax liability shown thereon was inaccurate in that the total tax previously assessed and not abated was $249,715.68, so that on the basis of the total tax liability of $99,357.41 the letter should have indicated an overassessment of $150,521.10. This feature was corrected in a letter by the deputy commissioner to the plaintiff on November 8, 1921, which superseded the earlier letter of June 13, 1921. No change, however, was made with respect to the amount of the total tax liability set forth in the previous letter.
7. June 15, 1922, plaintiff filed with the collector a claim for credit for $10,254.46 for 1918 asking that that amount be applied as a credit against the unpaid assessment of the income and profits tax for 1921. This claim for credit stated as follows: "The Western Shade Cloth Company paid income and excess profits taxes for 1918 in the amount of $249,715.68, applying at the same time for an assessment under section 328, and as a result its taxes were redetermined and fixed at $99,357.41, making an overpayment of $150,521.10. During the year 1919 and prior to the reassessment it filed a claim for credit in the amount of $140,266.64, which was applied on its 1919 taxes. There is a further credit due the company on account of the overpayment in 1918 of $10,254.46 which we ask to apply in our 1921 taxes, and in support of our claim beg leave to attach a copy of the deputy commissioner's letter of November 8th, 1921, and in view of the ruling contained in the letter, we ask for credit for the amount indicated without filing bond or giving security."
8. Neither of the overassessments shown in the letters of June 13 and November 8, 1921, has ever appeared on any schedule of overassessments or of refunds and credits signed by the Commissioner of Internal Revenue, and no certificate of overassessment was ever issued with respect to the overassessments shown in these letters, nor was any such schedule or certificate ever signed or issued by the commissioner on the basis of a computation of a profits tax for 1918 under section 328 in the amount of $38,641.41, as shown in the aforementioned letters.
9. July 15, 1927, the commissioner again considered the matter of the profits-tax liability under section 328 of the Revenue Act of 1918 and made a further determination and computation of the profits tax thereunder. Upon this determination he computed a total profits-tax liability under section 328 of $56,383.80 instead of $38,641.41, as disclosed in the previous computation, of which the plaintiff was advised in letters of June 13, and November 8, 1921. In this computation the total income and profits tax liability of the plaintiff and its subsidiaries for 1918 was determined to be $114,807.78 instead of $99,357.41, as disclosed in previous letters. The total tax of $114,807.78 was correctly allocated under the statute by the commissioner to the plaintiff and its subsidiary companies, the amount so allocated to the plaintiff being $80,813.93. The outstanding assessment against the plaintiff was $215,721.83, which, less the amount of $80,813.93, left an overassessment in favor of the plaintiff of $134,907.90 instead of $150,521.10 as theretofore determined and computed.
The commissioner's letter of July 15, 1927, which was mailed to the plaintiff on that date, is in evidence as Exhibit E to the stipulation of facts and is made a part hereof by reference. This letter concluded as follows:
"In accordance with the above conclusions your claims for credit of $140,266.64 and $10,254.46, aggregating $150,521.10 for the year 1918, will be allowed for $134,907.90 and rejected for $15,613.20. * * *
"The overassessments shown above will be scheduled at the expiration of thirty days from the date of this letter in the form of certificates of overassessments which will reach you in due course through the office of the collector of internal revenue for your district, who thus will be officially notified of the rejections. * * *"
10. After the mailing by the commissioner of the aforementioned letter of July 15, 1927, he prepared a certificate of overassessment showing an overassessment of $134,907.90 and correcting said letter of July 15, 1927, by reallocating $14,817.33 instead of $29,634.65 of said tax for 1918 to the Standard Shade Roller Company, which resulted in an increase in the amount of the tax allocated to the plaintiff, the parent company, for said year from $80,813.93 to $95,631.25. Pursuant to instructions from the commissioner, the collector, after the action taken by him on the schedule of overassessment hereinafter mentioned, forwarded this certificate of overassessment to plaintiff January 16, 1928. The certificate of overassessment is in evidence as Exhibit F to the stipulation and is made a part hereof by reference.
11. On January 5, 1928, the commissioner prepared and signed a "Schedule of overassessments," Form 7920, Schedule No. 28107, for the first district of Illinois, showing an overassessment in favor of plaintiff for 1918 in the amount of $134,907.90. This schedule instructed the collector that "if any part of any such item is found to be an overpayment, the collector will examine all accounts of the taxpayer for other periods and apply the overpayment as a credit against income, war profits, or excess-profits taxes due, if any, making the appropriate entries in his accounts. The amounts credited will be entered by the collector in column 6." Upon receipt of this schedule by the collector, he complied with the instructions thereon and made the entries in columns 5, 6, and 7 and signed the "certificate of collector" thereon January 16, 1928, whereupon he returned the schedule so filled out to the Commissioner of Internal Revenue. This schedule shows that the overassessment of $134,907.90 constituted an overpayment for 1918 and that such amount was credited against income and profits taxes due by the plaintiff for 1919. No other recording of any overassessment or overpayment appears on any schedule signed by the Commissioner of Internal Revenue.
We are unable to agree with the contention of the plaintiff that a determination and computation of a tax liability by the commissioner's office and the mailing of a letter showing the results thereof constitute an assessment of the tax as that term is used in the revenue statutes for the purpose of computing the statutory period of limitation within which the commissioner may assess and collect a tax, or adjust the tax liability of a taxpayer for the purpose of allowing or rejecting claims for abatement, credit, or refund. The limitation for making assessments is suspended under certain circumstances where a proceeding is instituted before the Board of Tax Appeals, but those provisions of the statute are inapplicable to the question presented in this case. The tax sought to be recovered in this case was duly assessed and paid on or about July 16, 1919.
Long prior to the determination of the commissioner with respect to the plaintiff's profits tax, as disclosed by his letter of July 15, 1927, and the schedule of overassessment signed January 5, 1928, the commissioner had timely assessed and collected an income and profits tax of $249,715.68 for 1918. No further assessment or collection of a tax for 1918 was ever found necessary or was made by the commissioner. All that the commissioner did after the tax for 1918 had been assessed and paid was to determine whether, in his discretion, the profits tax imposed by the statute upon the consolidated net income, which tax had been assessed and paid, should be reduced through a computation of the profits tax in the manner specified in section 328 of the Revenue act of 1918.
The plaintiff had filed an application with the commissioner requesting that the profits tax for 1918 be so computed. Within the time allowed by law plaintiff filed two claims for credit with respect to the tax paid for 1918. The commissioner considered the plaintiff's application for relief under section 328, and concluded that the application should be allowed. He thereupon, on June 13, 1921, made a computation of the profits tax under section 328 which showed a profits tax of $38,641.41 and an income tax of $60,553.07 upon the net income shown in the return, or a total income and profits tax liability of $99,194.48. On that date he mailed plaintiff a notice showing this determination. On the basis of the tax so computed the overassessment was $150,521.10. This determination and computation did not constitute an assessment within the meaning of the statute. The commissioner was free to make a further determination and computation with respect to the profits tax liability under section 328 before he had made any allowance of an overassessment in the manner provided by law.
No schedule of overassessment or certificate of overassessment was ever signed or issued by the commissioner upon the basis of the computation shown in the letters of June 13, and November 8, 1921. The plaintiff had filed claims for credit and the period of limitation within which the commissioner could allow an overassessment, overpayment, or a credit was suspended. The mailing of the letter of June 13, 1921, did not constitute the allowance of an overassessment or overpayment. Martin M. Philipsborn v. United States, 53 F.2d 133, 72 Ct. Cl. 545. Before the commissioner had finally acted upon the claims for credit in the manner provided by the statute, the matter of the correct tax liability of the plaintiff was open for consideration and determination by him. Lewis v. Reynolds, 284 U.S. 281, 52 S. Ct. 145, 76 L. Ed. ___. Until he had taken final action with respect to the claims for credit in the manner provided in the statutes, either by rejecting or allowing the same, he was free to make as many determinations and computations of the plaintiff's correct tax liability as he deemed necessary, either under section 328 of the Revenue Act of 1918 or with respect to any other feature affecting the correct tax liability, for the purpose of determining whether there had been an overassessment or overpayment and whether any portion thereof should be credited or refunded. Oak Worsted Mills v. United States, 36 F.2d 529, 68 Ct. Cl. 539.
The commissioner's determination and computation of the tax liability for 1918, as disclosed in the letter of July 15, 1927, in accordance with which he issued and approved a schedule of overassessment allowing plaintiff's claims for credit in the amount of $134,907.90 instead of $150,521.10 as indicated in an earlier computation, did not constitute an assessment of a tax of $15,613.20 for 1918 after the expiration of the statutory period of limitation within which the commissioner could assess and collect the tax for 1918.
The petition must be dismissed. It is so ordered.